HomeInn Limited is a well established company that runs chains of hotels and resorts across different locations in India. "HomeInn Budget" hotels…

HomeInn Limited is a well established company that runs chains of hotels and resorts across different locations in India. "HomeInn Budget" hotels The hotels operate as budget hotels and operate under the brand “HomeInn Budget”. It provides accommodation for cost-conscious travellers visiting the city for short stay lasting a day or two. Typically a room in “HomeInn Budget” hotels would provide comfortable beds, high speed internet connection, air conditioning facility, coffee machine, fridge and free television service. Food service based on a limited menu is provided on the premises. It has few conference rooms that provide space for guests to hold business meetings. This saves them precious time otherwise wasted in travelling on congested city roads. The hotel provides free shuttle service to and from the airport at specific times during the entire day. Proximity to the airport, the free shuttle service and convenience of conducting work at the conference rooms have been marketed to attract guests to stay here. The guests also comprise of people who are in transit between airports. Also when there are long-duration delays in flight operations due to which passengers need to be provided overnight accommodation, few airline operators host their guests here. Like all other guests, these airline operators are also interested in for its location and low-cost room rental. In all, HomeInn Limited has 15 hotel properties spread over 15 cities. All of them function under the "HomeInn Budget” brand catering to cost-conscious travellers. In all these establishments, since the location of the hotel is near the city airport, the real estate cost, both for ownership and rental is very high. Hence, instead of having an in-house establishment for cleaning and food service, the company has outsourced these services to specialized vendors. This will reduce the additional space requirement needed to maintain the facilities to provide these services. This will help to keep its costs of operations within control. Since the hotel property is in the city, there is ample availability of vendors providing this service. Cleaning service includes cleaning of kitchen crockery, bedding, laundry and housekeeping of premises. Similarly, the entire set of activities related to preparation of food has been outsourced. Vendor service has been satisfactory, barring few instances where guests have complained of unhygienic rooms or non-palatable food service. However, due to high guest volume and quick turnover of guests due to short stay periods, this has never been a hindrance to business. This business model has been profitable since its establishment. HomeInn Limited has a sizeable market share in this segment. Competition has increased in the recent past. Price wars have put pressure on profit margins of the budget hotel segment. Room rates are increasingly being determined by the prevailing market rates in the respective locations. "HomeInn Comfort" Resorts The management plans to continue to operate in the budget hotel to maintain its market presence. At the same time, to sustain business in the long term, the management of HomeInn Limited has forayed into developing properties for luxury resorts under a separate new brand called “HomeInn Comfort". Target guest segment are vacationing tourists interested in a enjoying a laid-back time in scenic places. These guests would not mind paying premium for availing good quality service. Maintaining cleanliness of premises and food service are critical activities in the operation of luxury hotels. Unlike cities, the location of these resorts is in more sparsely populated areas. While there are vendors providing cleaning and food services, there are limited options to choose from. Customer satisfaction is paramount to sustain and grow business in the luxury resort segment. With the ability to post reviews online on booking portals, any negative review (whether justified or not) can reach very easily to a large number of potential guests. This can negatively impact future business. HomeInn Limited is developing a "HomeInn Comfort" property in Goa. The construction involves several key expenditures essential for acquiring land, preparing the site, procuring materials, labor costs, safety measures, and other associated expenses. The company has invested 15 crores in land acquisition and 2 crores for site preparation, including dismantling existing structures. The cost of direct materials amounts to 8 crores, while labour expenses total 3 crores, including 20 lakh paid during a labour strike. Structural safety testing has been conducted at 0.5 crores, and legal and architectural consultation fees stand at 1.5 crores. Additionally, 0.10 crores has been spent on relocating the resort manager from Mangalore to Goa, and - 0.50 crores has been allocated for administrative and overhead costs. These expenses collectively contribute to the successful development of the HomeInn Comfort resort, ensuring quality construction and operational efficiency. The property is being acquired from an unrelated party at arm's length transaction value. Five out of the six directors were present at the Board Meeting to consider and pass the resolution to acquire the property. The operations at the Goa resort started as per the expected timeline. It is in its 3rd year of operations. In a recent management meeting, key financial data was reviewed. The resort reported a Net Operating Profit Before Interest and Tax (NOPBIT) of 5 crores, with a depreciation expense of 3 crores. The change in working capital amounted to 4 crores, while capital expenditure stood at 5 crores. The total invested capital in the resort is 20 crores, with a Weighted Average Cost of Capital (WACC) of 8% and a tax rate of 30%. HomeInn is a renowned hospitality chain with a nationwide presence, providing top-tier accommodations in key metropolitan cities. With a commitment to providing a seamless and comfortable stay experience, HomeInn operates a diverse portfolio of hotels that cater to both business and leisure travellers. One of the key offerings of HomeInn is its combined stay package, which allows guests to book accommodations in multiple locations under a single consolidated plan. This package is particularly beneficial for travellers with multi-city itineraries, such as business professionals, tourists, and corporate delegations. By bundling stays across its hotels in different states, HomeInn provides convenience, cost-effectiveness, and a hassle-free booking experience. Mr. Vikash Kwatra, a businessman from Mumbai, undertakes a business trip and chooses HomeInn for his accommodation. HomeInn charges a consolidated sum of 60,000 from Mr. Vikash Kwatra for stay in its two hotels in Delhi and Jaipur, where the stay in Delhi is for 4 nights and the stay in Jaipur is for 2 nights.